January

MANAGEMENT EXPENSES DOWN, COMPENSATION COSTS UP

Plan and Budget 2016/17 out today

This is the time of year we publish our plan for the year ahead – 2016/17 – and, alongside it, our indicative budget. We also give firms a first indication of the compensation costs we’re expecting, the off-setting recoveries we expect to achieve and our levies. 

Our levies are the product of a deceptively simple sum. For each industry sector, we add our management expenses to expected compensation costs and subtract from that total the sum of forecast recoveries and any balance we expect to carry over from this year.

You can find this arithmetic and the full detail set out in our Plan and Budget 2016/17, which we published today. The FCA and PRA also published a consultation on our proposed management expenses.

I hope very much hope you will give us your views on both documents.

Of course, the compensation costs dwarf our management expenses. They are over five times as large: £363m against £67m. But I want to concentrate on the management expenses in this blog because it’s important we explain to levy payers how we are managing our own costs.

And I suppose the first point to make is our management expenses are now firmly on a downward trajectory. They’re down nearly £2m on 2015/16. Barring unexpected major failures or significant recoveries litigation in the years ahead, we aim to continue the trend. This is the second consecutive year we have reduced our management budget compared to the previous year.

This year’s budget does, however, reflect some important changes in the way we operate. Let me explain.

This year we have implemented a new claims handling system for non-deposit claims. It complements the system for paying out the majority of savers in a failed bank, building society or credit union in seven days, introduced in 2011.

Once working at full capacity, this new system will enable FSCS to provide a better service to our customers and to respond to our unpredictable and volatile workload more efficiently. 

This comes about because we have now brought the outsource partners who handle the majority of claims onto the same modern claims handling platform as FSCS.  And we’ve opened an online portal through which our customers can submit claims and supporting evidence. A number of claimants have already done so as part of a pilot. We shall also receive paper claims where customers prefer, but these will be scanned into our system.

The result will be a much better service for our customers and a better value service for our levy payers. It will be more convenient for customers to make claims. We expect to be able to turn those claims round faster and with better information for customers on progress. Because claims will now move electronically between FSCS and our outsource partners, we and our partners will be able to ramp up quickly and efficiently to deal with failures.

These gains are, however, still in the future as we are still bedding-down the new claims handling process.

We have also learned some lessons during the process of implementation about the capabilities we shall need in future to support claims handling, which relies much more heavily on the supporting IT and data infrastructure. In effect, we are now providing an IT service to our customers and to our outsource partners.

That explains why I have re-organised FSCS’ senior structure to appoint a Chief Operating Officer to be responsible for our claims service and the supporting infrastructure. We warmly welcome Jimmy Barber from RSA to that role. Jimmy will be supported by a new Chief Information Officer, Paul Brocklehurst, who will join us soon from Surrey County Council.

Simultaneously, we shall be strengthening our internal capacity to manage our IT/data infrastructure and changes to it and reducing our dependence on expensive consultants.

To ensure a continuing focus on value for money, Kathryn Sherratt becomes our Chief Finance Officer.

So FSCS has now largely completed its major investment in modernising our claims handling. Of course, change will continue: the regulatory environment will change; customers’ expectations will change; technological capabilities will change.

But we do not expect to make investments again soon on the scale of the post-crisis years. We do expect to be more self-sufficient and better able to support future changes in the demands on FSCS, including, if necessary, another crisis.

As you will see, however, from our forecast of compensation costs, we are not currently expecting such a crisis in 2016/17.


Jargon Buster

Credit union

a financial co-operative which is owned and controlled by its members.

FCA

The Financial Conduct Authority is the UK's regulator for the financial services industry. 

Investment

a financial product in which money can be invested to earn interest or profit (although the value of investments can go down as well as up).